Thursday, June 08, 2006

The Economics of Islam -- Part II: A New Social Contract

This is a more serious posting. It relates to the dysfunctional relationships between Muslim populations and their governments. Muslim populations have grown restless after the welfare state-mentality -- following the socialist movements of the 1950s and 1960s and/or the oil revenue spike of the 1970s -- has given way to the stark reality of the terrible poverty and underdevelopment of those countries (including the oil rich countries, which are nonetheless incredibly poor).

The way out of this economic underdevelopment will not be easy. The medicine that is required to wean those countries off their rentier mentality, get rid of kleptocracy, and instill a culture of saving and genunire entrepreneurship, is very bitter. It requires a new social contract, for which the rise in Islamic fervor may be harnessed.

In his controversial book "The Great Test" (الفتنة الكبرى), Taha Hussein proposed an interesting political-economy interpretation of Islam: The resistance of Quraysh to Islam had very little to do with its monotheistic message, he argued -- most of the elites were agnostic at any rate, using religion only as a vehicle for political and economic power. It was the socioeconomic message of Islam that they found most disturbing: it affirmed private property and enterprise, and hence could not easily be dismissed (in today's language) as Utopian socialist or communist, but at the same time emphasized equity and the evils of excessive wealth accumulation. Worst of all, argued Hussein, Islam threatened the aristocracy created by marriage of money and power, declaring that the noblest are in fact the most pious.

According to Taha Hussein, the righteous leaders of the first fifty years of Islam (610 to 661 CE, spanning the beginning of the Prophet's mission until the Umayyads established their dynasty following the assassination of Ali, the fourth and last of the rightly guided Caliphs), with the possible exception of `Uthman (whom Hussein argued had good intentions but bad policies) -- the reason that his book was so controversial -- led by example: The Prophet (p) was a middle-class merchant, but when he became leader, he chose to die poor. The same is true of `Umar, Abu Bakr and Ali (r), who all insisted on keeping the Muslims from enjoying the great riches of conquered lands, and led by example -- living very simple lives. By living as the poorest do (`Umar eating only bread with oil when others suffered under famine being the most famous example), they could ensure a more equitable model of economic development (as opposed to the model where the rich get richer and the poor poorer).

The exceptions, of course, were `Uthman (r), who allowed the Prophet's companions to trade land, live more luxurious lives in the conquered lands, etc. Once this undisciplined materialism took hold of a big fraction of Muslims, argued Taha Hussein, the end of the socioeconomic regime started by the Prophet (p) in Madina had begun. `Ali tried to bring back the discipline of the earlier decades under `Umar (r), but to no avail -- too many Muslims by then could be lured away from his strict standards by the promise of riches under Mu`awiya.

The current state of affairs in Muslim societies combines the worst of both worlds: the elites of Muslim societies remind us of Yazid, son of Mu`awiya -- they do not even use economic incentives skillfully to further the public interest in any meaningful way; they are merely infatuated with fabulous and previously unimaginable riches. Consequently, they spend excessively on unproductive activities that their extremely poor countries (including GCC countries, who are very poor by international standards, despite the windfall of oil revenues that is likely to last them only a century or less) cannot afford, and buy the public's temporary happiness with transfers of their short-lived energy rents. Investments are also geared towards consumables and fast profits, as the business communities try to share in the fabulous wealth of the political rentiers. Public investments, including infrastructure building, is in most cases inappropriate for the very early stages of development of those countries, if they were to decide to develop economically.

Hence the need for a new social contract. The new Islamic adherence is becoming clear among all but the top-most cirlces of the rich and powerful. However, it seems mainly to stop at the feel-good level of paying some charity, excessive performance of `umra and Hajj, sponsorship of religious entertainment, etc. If those groups take their religion deeper, and convince the elite circles that they should be good Machiavellians and mimic the increased religiosity of their governed public, then a new social contract may be forged to enhance savings rates, make competition more productive, and redirect investment to more appropriate forms conducive to economic development. (Interestingly, Khatami and Ahmadinejad in Iran seem to follow that model, and that may be part of their mystique for their peoples. Is this the new breed of political leaders that we may see around the Islamic world in future years? Perhaps those who are more politically adept will learn from the domestic political successes of those currently seen as demagogues, and forge this new social contract).